68 research outputs found
Testing the New Keynesian Phillips Curve Without Assuming Identification
We re-examine the evidence on the new Phillips curve model of Gali and Gertler (Journal of Monetary Economics 1999) using the conditional score test of Kleibergen (Econometrica 2005), which is robust to weak identification. In contrast to earlier studies, we find that US postwar data are consistent both with the view that inflation dynamics are forward-looking, and with the opposite view that they are predominantly backward-looking. Moreover, the labor share does not appear to be a relevant determinant of inflation. We show that this is an important factor contributing to the weak identification of the Phillips curve.
Testing the new Keynesian Phillips curve without assuming identification
We re-examine the evidence on the new Phillips curve model of Gali and Gertler (Journal of Monetary Economics 1999) using the conditional score test of Kleibergen (Econometrica 2005), which is robust to weak identification. In contrast to earlier studies, we find that US postwar data are consistent both with the view that inflation dynamics are forward-looking, and with the opposite view that they are predominantly backward-looking. Moreover, the labor share does not appear to be a relevant determinant of inflation. We show that this is an important factor contributing to the weak identification of the Phillips curve
Identification at the Zero Lower Bound
I show that the Zero Lower Bound (ZLB) on interest rates can be used to
identify the causal effects of monetary policy. Identification depends on the
extent to which the ZLB limits the efficacy of monetary policy. I propose a
simple way to test the efficacy of unconventional policies, modelled via a
`shadow rate'. I apply this method to U.S. monetary policy using a
three-equation SVAR model of inflation, unemployment and the federal funds
rate. I reject the null hypothesis that unconventional monetary policy has no
effect at the ZLB, but find some evidence that it is not as effective as
conventional monetary policy
The unbearable lightness of equilibria in a low interest rate environment
Structural models with no solution are incoherent, and those with multiple
solutions are incomplete. We show that models with occasionally binding
constraints are not generically coherent. Coherency requires restrictions on
the parameters or on the support of the distribution of the shocks. In presence
of multiple shocks, the support restrictions cannot be independent from each
other, so the assumption of orthogonality of structural shocks is incompatible
with coherency. Models whose coherency is based on support restrictions are
generically incomplete, admitting a very large number of minimum state variable
solutions
Coherence without Rationality at the Zero Lower Bound
Standard rational expectations (RE) models with an occasionally binding zero
lower bound (ZLB) constraint either admit no solutions (incoherence) or
multiple solutions (incompleteness). This paper shows that deviations from
full-information RE mitigate concerns about incoherence and incompleteness.
Models with no RE equilibria admit self-confirming equilibria involving the use
of simple mis-specified forecasting models. Completeness and coherence is
restored if expectations are adaptive or if agents are less forward-looking due
to some information or behavioral friction. In the case of incompleteness, the
E-stability criterion selects an equilibrium
Identication Issues in Forward-Looking Models Estimated by GMM, with an Application to the Phillips Curve,
Abstract Limited-information methods are commonly used to estimate forward-looking models with rational expectations, such as the "New Keynesian Phillips Curve" of JEL classification: C22, E3
Testing the effectiveness of unconventional monetary policy in Japan and the United States
The effective lower bound on a short term interest rate may not constrain a
central bank's capacity to achieve its objectives if unconventional monetary
policy (UMP) is powerful enough. We formalize this `irrelevance hypothesis'
using a dynamic stochastic general equilibrium model with UMP and test it
empirically for the United States and Japan using a structural vector
autoregressive model that includes variables subject to occasionally binding
constraints. The hypothesis is strongly rejected for both countries. However, a
comparison of the impulse responses to a monetary policy shock across regimes
shows that UMP has had strong delayed effects in each country
A Ridge-Regularised Jackknifed Anderson-Rubin Test
We consider hypothesis testing in instrumental variable regression models
with few included exogenous covariates but many instruments -- possibly more
than the number of observations. We show that a ridge-regularised version of
the jackknifed Anderson Rubin (1949, henceforth AR) test controls asymptotic
size in the presence of heteroskedasticity, and when the instruments may be
arbitrarily weak. Asymptotic size control is established under weaker
assumptions than those imposed for recently proposed jackknifed AR tests in the
literature. Furthermore, ridge-regularisation extends the scope of jackknifed
AR tests to situations in which there are more instruments than observations.
Monte-Carlo simulations indicate that our method has favourable finite-sample
size and power properties compared to recently proposed alternative approaches
in the literature. An empirical application on the elasticity of substitution
between immigrants and natives in the US illustrates the usefulness of the
proposed method for practitioners
A ridge-regularized jackknifed Anderson-Rubin test
We consider hypothesis testing in instrumental variable regression models with few included exogenous covariates but many instruments—possibly more than the number of observations. We show that a ridge-regularized version of the jackknifed Anderson and Rubin (henceforth AR) test controls asymptotic size in the presence of heteroscedasticity, and when the instruments may be arbitrarily weak. Asymptotic size control is established under weaker assumptions than those imposed for recently proposed jackknifed AR tests in the literature. Furthermore, ridge-regularization extends the scope of jackknifed AR tests to situations in which there are more instruments than observations. Monte Carlo simulations indicate that our method has favorable finite-sample size and power properties compared to recently proposed alternative approaches in the literature. An empirical application on the elasticity of substitution between immigrants and natives in the United States illustrates the usefulness of the proposed method for practitioners
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